Haitong: The high increase in exports in track-and-trace re-export trade is due to strong domestic demand in ASEAN countries.

Haitong released a research report stating that, learning from the trade friction in 2018-2019, some industries/commodities in China are achieving re-export through bypassing Southeast Asian countries or engaging in industrial chain division of labor with Southeast Asian countries. In the past two years, China's high exports to Southeast Asia are not simply re-exports. From the demand side perspective, ASEAN is in a phase of rapid industrialization and consumption upgrading, with strong domestic demand growth and high dependence on imports from China. China's share in high-end manufacturing imports has been increasing continuously. With dual support from supply and demand, China's high-end manufacturing exports to Southeast Asia are expected to maintain strong growth. Haitong's main points are as follows: Tracking re-export method 1: Using a detour through a third country. By comparing the changes in exports to Southeast Asia and Latin America by various industries in China before and after the US-China trade friction in 2018-2019, as well as the changes in imports from Southeast Asia and Latin America by industries in the United States, we find signs of re-export in various industries in Southeast Asia, Latin America, etc. That is, products are exported to the United States through Southeast Asia, Latin America, etc. For example, household goods, batteries, and semiconductors are typical: The Chinese household goods industry conducts re-export trade in Cambodia through Chinese-funded enterprises in Cambodia; the Chinese battery industry increases investment in Malaysia for re-export through Malaysia; with support from the Thai government and Chinese investments, China's semiconductor industry re-exports through Thailand, leading to a rapid increase in semiconductor imports from China to Thailand and exports to the US. Tracking re-export method 2: Cross-border industry division of labor. By analyzing industries in Southeast Asia and Latin America that have upstream and downstream relationships, and whether import volumes from China and export volumes to the United States have significantly increased after the US-China trade friction, we find that multiple industries in China have intermediate trade relations in Southeast Asia, i.e., exporting intermediate products to Southeast Asia, where they are assembled into finished products and exported to the United States. For example, in the automotive and electronics industries: Driven by Chinese investments, China exports rubber to Cambodia, which is processed into automotive parts exported to the US; due to favorable policies in Mexico, China exports automotive parts to Mexico, which are assembled into passenger cars and re-exported to the US; with strong support from the Cambodian government, China exports diodes, crystals, and other semiconductors to Cambodia, processed into consumer electronics such as mobile phones and then exported to the US; or benefiting from Apple's chain companies setting up factories in Vietnam, China exports integrated circuits and microelectronics to Vietnam, which are processed into consumer electronics such as mobile phones and exported to the US. In recent years, China's high exports to ASEAN are not solely re-exports. In summary, in recent years, China's high exports to Southeast Asia are not simply re-exports or division of labor. Firstly, industries that have been sanctioned in recent years do not exhibit obvious re-export trade. Secondly, our observation shows that China's exports to Southeast Asia are not solely bypassing through division of labor. After September 22, there has not been a significant increase in China's semiconductor and automotive parts exports to Southeast Asia, nor in imports of consumer electronics/passenger cars from Southeast Asia to the US. From the demand side, ASEAN is in a phase of rapid industrialization and consumption upgrading, with strong domestic demand growth and high dependence on imports from China, as well as China's share in high-end manufacturing imports continuously increasing. Looking at the supply side advantage, China has a complete manufacturing system and is transitioning from a demographic dividend to an engineering dividend. Therefore, with dual support from supply and demand, China's high-end manufacturing exports to Southeast Asia are expected to maintain strong growth. Risk warning: Unexpected deterioration in US-China relations leading to overseas trade environment deterioration.